Land Value: Surplus vs. Excess

I recently came across this interesting animated GIF from an article from RealtorMag regarding land values over the last 40 years.  It followed the overall housing market by peaking in 2006 and bottoming in 2011.  When thinking about land value it is important to understand a fundamental concept of surplus land vs. excess land.  Jonathan Montgomery also wrote an excellent post with some additional information on this topic you can read here.


EXCESS LAND is the portion of the lot that is not necessary to meet the existing zoning requirements AND could possibly be sub-divided and sold off as a separate parcel.  
SURPLUS LAND is not large enough to be separated from the existing parcel and therefore, does not have as much value as excess land.


The trick I was taught to remember this is excess land is excellent.  Let's look at the following two slides below from a recent class I took from the Hagar Institute (which I highly recommend for all appraisers).

Source: How to Support and Prove Your Adjustments by Richard Hagar 

Source: How to Support and Prove Your Adjustments by Richard Hagar 

In this example, a 3000 sq. ft. lot is valued at only $3 per sq. ft. as it is considered unbuildable and has minimal utility.  Once you get to 5000 sq. ft. the value per sq. ft. increases to $40 per sq. ft. Therefore, a 3000 sq. ft. lot would have a market value of around $9000, while a 5000 sq. ft. lot would have a market value of $200,000.  

Remember that when appraisers are analyzing land values, we are NOT making adjustments on the total size, but instead the incremental change in size.  This same theory can be applied to many other features of real estate as well (GLA, first bed or bath, first 50' of water frontage, etc.)  If you have any questions please feel free to call me at (847) 863-5776 or leave your question or comment below. 

The Housing Value of Every County in the U.S.

The Housing Value of Every County in the U.S.

I recently came across this map posted on Twitter by Max Galka of Metrocosm.com.  It shows a map of the U.S. with the land area of each of the individual counties being substituted by the total market value of the housing.  Keep in mind that this is the sum of the values for each county, which is going to be skewed by population; nevertheless, this GIF is way too cool not to share.  


I found this map is really hypnotic.  Several times while typing this post I have found myself zoned out just staring at it.  Anyone else?

Also, I would love to see this type of map that separates out all of the Chicago neighborhoods and suburbs.  My guess would be the North Shore, downtown and Lincoln Park in Chicago, and the Hinsdale/Oakbrook area would be the largest.



Appraisal Industry: The Tide May Be Shifting

Appraisal IndustryWith all of the changes happening in the appraisal industry right now, I thought I would share this article I did for Working RE a little less than a year ago that detailed my personal journey. In the article I made reference to some of the positives in the appraisal industry:

Excerpt from the Working RE article titled Taking Success into My Own Hands:

There is a lot of negativity in the appraisal industry and without question, certain things need to change. However, there are also a lot of positives appraisers can focus on to improve their business.

The Appraiser Movement

Today, with the help of technology and social media, I feel the momentum may be shifting in the appraiser’s favor.  The title of the article was “Taking Success into my Own Hands”.  Now, I think there is a new appraiser movement that is taking success into our own hands.  There are new internet shows like Phil Crawford’s “Voice of Appraisal” and Dustin Harris’s “The Appraiser Coach Podcast” that are helping get the word out for on behalf of the residential appraiser.  There are public Facebook groups and private members only groups like “Appraiser Insider” that has not only helped my business, but completely transformed it.  You also have bloggers like Gary KristensenLori NobleTom HornBill CobbRyan Lundquist, and many more¹ who are helping educating real estate agents, homeowners, attorneys, and calling out injustices in the industry.

Just as recently as a month ago, after an AMC tried to demand the entire work file be submitted with their appraisal reports, the bloggers, appraisal shows, and Facebook groups got the word out and due to public backlash, essentially shut that down and within a week the company published a revision to the new requirement.  We also recently saw the first “administrative fee” of $5000 to a company for not paying “Customary and Reasonable Fees” in Louisiana³.  Individual state Coalitions like Illinois’ own ICAP, headed by current president Rick Hiton, are really making some positive headway with state legislators.  Multiple state coalitions are even getting together to discuss ideas and plans for the betterment of the appraisal industry.  Yes, the appraisal industry appears to finally becoming more united.

With what appears could be an appraiser shortage on the horizon, we are going to need some changes to the requirements to becoming an appraiser or  change how trainees can be used and thus facilitate more appraisers coming into the industry.  To that point, I recently received an email from a major national bank who refined its expectations regarding the involvement of appraiser trainees.  They no longer require supervisory appraisers to be physically present with trainee appraisers at all subject property inspections and driving comparable sales.  This will allow us to not only train the next generation of appraisers, but make it financially feasible to do so.  We have seen a lot of “monkey see monkey do” in negative ways with banks and AMC’s in the past, but this is one trend that I would love to see catch on.

I don’t pretend to know where the appraisal profession will be in 5 years with UAD concerns, appraiser shortages, AVM’s, reasonable and customary fees, etc.  There are many more battles that will need to be fought.  But again, a year later, with more public voices out there speaking on behalf of the real estate appraiser, I still think there is still reason for optimism.

Update On My Journey

Like many appraisers right now with rates near all time lows, I have never been busier.   My average fees have never been higher.  I have been able to increase my standard fee over 20% and was even contacted by one client to let me know they were increasing the standard fee without me asking.  I have also been able to leverage my website into more and more non lender work.  This allows my business to be more diversified and not have to worry about interest rates spiking or a major change in order volume from my best clients.  People will never stop getting divorced and never stop dying (divorce and estate appraisals).  Both are a major source of non-lender appraisal work. Working with clients for “pre-listing” or “pre-purchase appraisals” is one of my favorite types of assignments as it allows me to interact more with the client and really explain the appraisal process and how my opinion of value was determined.

I am continuing to reach out to other appraisers in my area and the Appraiser Insider group to discuss strategies and industry topics.  I just finished the second part of a 4-day “Green and Sustainable Buildings” appraisal course from the Appraisal Institute in Palm Desert, CA (the class is actually free as it is being sponsored by Build it Green²).  While currently there isn’t a big demand for valuing solar and other green residential homes in Chicago, I feel there may be in the near future and want to make sure I at least have a basic understanding.

If you have any thoughts or anecdotal evidence of where you may think the industry may be headed, please feel free to post a comment below to continue the discussion.

 

¹ Mike Turner, Michael Coyle, Jonathon Montgomery, Jeff Hamric

² These FREE classes will be offered again in Laguna in September.  Appraisers who complete the courses will have them name listed on the Appraisal Institutes Green Registry.

³ I was just forwarded an email from Pierce Blitch, III, IFAS from Georgia indicating that they too have completed a Fee Survey for Reasonable and Customary.  It appears their bill has passed both houses and was signed by the Governor.  More evidence that change is on its way!

Market Value: Probable Vs. Possible

Market Value DefinitionThe CU (Collateral Underwriter) is obviously a hot topic right now and there are many excellent blog posts written by fellow appraisers that point of many of its flaws (see the bottom of the page for links to those posts).  On a recent positive note, Fannie Mae recently sent a letter to its lender clients that included the statement, “Before asking the appraiser to consider any alternative sales, it is imperative that the lender analyze the relevance of the sale and determine if the use of such a sale would result in any material change to the appraisal report.  If the lender determines that there would be no material change, then they should not ask the appraiser to make revisions.”

But what I want to touch on in this post is that the existence of the CU will more than likely change the approach of many appraisers (in a good way).  Why would this change an appraiser’s approach?  One of the answers lies in the definition of market value as defined by Fannie Mae.  Sometimes as appraisers, we may need to be reminded of one of the most important parts of this definition.  Fannie Mae’s definition is as follows:

Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

  • buyer and seller are typically motivated;
  • both parties are well informed or well advised, and each acting in what he or she considers his/her own best interest;
  • a reasonable time is allowed for exposure in the open market;
  • payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
  • the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
The key part of this definition that I am focusing on is “the most probable price”.  Not the highest possible price, the most probable.

As was recently pointed out on the Voice of Appraisal with Phil Crawford recently, “Possibilities and probabilities are two totally different things”.  Prior to the HVCC, it was not uncommon for appraisers to be asked by loan officers, “What is the highest value you can appraise this property for?”.  The HVCC eliminated much of that by adding a layer of protection (and in-consequently taking a chainsaw to our standard fees).  However, there were still appraisers that would search the neighborhood and cherry pick a few of the highest sales in an effort to support the purchase price.  However with the CU, if only the 3 comparable sales with the highest sales prices are used, the CU will most likely bring that to the attention of the lender, who could in turn bring it to the attention of the appraiser.  If you are appraising a home that has 10 similar sales in the neighborhood and you use the three highest, the appraiser better have support and be prepared to explain why their value is at the upper end of the range.  That is not to say that in certain circumstances it should not be at the upper end of the range (superior condition, superior quality of construction, larger lot size, superior view, larger GLA, etc).  But if the subject is in the middle of the range when compared to the comparable sales in terms of many of the factors that affect value (GLA, condition, quality of construction, bed and bath count, view, location, basement area and finished basement area, lot size, etc), then the final opinion of value should not be at the extreme high or low end of the range.  Again, our job is to determine the most PROBABLE price the property would sell for, not the highest POSSIBLE price.  This should also help keep artificially inflated appraisals out of the refinance and home equity markets.

How this plays out over the long term remains to be seen.  I know most appraisers have much bigger concerns with CU and how it will impact our profession in the short and long term, as do I.  It’s just that these issues have have all been written about by other appraisers.  I just thought I would suggest a revisiting of the definition of market value.  The “most probable and not highest possible” portion of the definition is also something that appraisers can point out to educate your clients and even real estate agents when your opinion of value is below a contract price.

Links to additional articles on the CU:

 

Rowe Appraisal Group specializes in real estate appraisals for divorce, estates, pre-listings and more throughout the Chicagoland area.  If you have any real estate appraisal questions, please feel free to call us at (847) 863-5776 or email paul@roweappraisalgroup.com.

Paired Sales in the Chicago Condo Real Estate Market

Chicago Condo Garden

With all of the discussion regarding the CU (Collateral Underwriter) and using regression analysis to support adjustments, I thought I would share a recent, good old fashioned Paired Sales Analysis (Matched Pairs) to determine an adjustment for a Garden unit vs. a high first floor unit.  The idea behind paired sales is to find 2 or more sales that sold around the same time, in the same location, that are the same with the exception of one feature.  The difference between to the two sales price should give you a supportable adjustment.  The best thing about condo conversions in Chicago, is that when they are converted from apartments, the building and units are often rehabbed and resold around the same time.  Even better, they are often rehabbed by the developer with similar finishes in each of the units.  When the garden unit has the same floor plan as the units above it, it creates a perfect data set to extract a matched paired sales adjustment.  You have similar location (same address), they typically sell with a few months of each other, and are similar in bed and bath count, GLA, etc.

I was appraising a garden unit in on the northwest side of Chicago.  While I was able to find other recent sales of garden units for comparable sales, I needed to use a non garden unit to bracket a particular feature.  After pulling 3 recent garden unit sales, I found out when the buildings were converted and look up the sales prices of each of the units at that time.  Here is the data below:


Chicago real estate apprasier

As you can see above, I have four different paired sales to analyze.  One building actually provided two sets as the two units both sold again recently within 2 months of each other.  The percentage difference ranged from 9.2% – 15.3%.  After average all four percentages, I was able to come up with a 12.5% adjustment for the difference between a garden unit and the unit above it.  When the CU comes back and I am asked why I gave such a large (or small, who knows with CU) adjustment for floor level, I can cut and paste this into the addendum.  Or better yet, just put in into the report in the first place and hopefully avoid the hassle.

While this ended up working out really nice and neat for this appraisal, my fellow appraisers will attest to the fact that finding good paired sales in all circumstances in just a pipe dream.  I just thought I would share one example in which it worked out really well.  I have been testing many of the recent regression tools available for appraisers and have found a couple to be really promising.  Once I learn all of the nuances and techniques, I believe they will be extremely helpful in many situations.  But those of you who have tested them know, they often give some crazy results and other methods will still be necessary.  My favorite so far is PAIRS, by Gandysoft.  Please leave a comment and let me know which software you are finding to be the most useful so far.

Rowe Appraisal Group specializes in real estate appraisals for divorce, estates (date of death), pre-listings and more throughout the Chicagoland area.  If you have any home appraisal related questions, please call us at (847) 863-5776 or email paul@roweappraisalgroup.com.

Best Time to Buy or Sell Chicago Real Estate

 

I recently read an excellent blog post by Gary Kristensen (click here to read).  I thought I would similarly take a look at the Chicago market and try to graphically depict the best time to buy or sell in the Chicago real estate market.  As we all know real estate is seasonal in most markets with the school year being a big factor, but more so in Chicago due to the blustery winter months.

I exported every monthly data point from the S&P/Case Shiller Home Price Index dating back to 1986 (that’s 336 total data points and 28 monthly data points which should be a large enough of a sample to account for any outliers).  I then averaged each month and charted the results…..

 

Chicago Case-Shiller Chart

 

 

As you can see, it appears as if the worst times to sell would be January through April (all below the yearly average).  Also, keep in mind that these are closed sales which most likely went under contract 1-3 months prior.  So while August appears to the best, those homes most likely went under contract in July and originally listed for sale in April or May (assuming a 60-90 day marketing time).

As Gary astutely points out in his post, most people who are selling a home are also buying a home.  Therefore, in these cases, trying to time the market isn’t necessary.  For those who are only selling, it looks like listing in May or June would be best (assuming we add 60 day marketing time and 2 months to close).  I have also heard an interesting thought from one Realtor who said he loves to list a home and have an open house the Sunday in February after the Superbowl.  He said he does this to get ahead of the market and also he gets a tremendous amount of traffic.  He thinks it is because many women who want to get a head start looking at homes are finally able to get their husbands out of the house on a Sunday. This is clearly anecdotal evidence (and kind of funny), but an interesting approach nonetheless.

Oddly, December had the second highest average that I could not account for.  I showed this to a few other real estate appraisers.  They weren’t sure either and thought this could be corporate transfers coming in prior to years end for write offs to people trying to close before the snow comes.  If you have some thoughts are what is causing this spike, please add them to the comments below.  Also, when is your favorite month to sell.

 

Rowe Appraisal Group specializes in appraisals for divorce, estates (date of death), pre-listings and more throughout the Chicagoland area.  If you have any questions, please call us at (847) 863-5776 or email paul@roweappraisalgroup.com.

 

 

Top Factors Affecting Your Chicago Real Estate Value

I often get asked while completing appraisal inspections, “Do you count X when you do appraisals?”.  The short answer is that we try to consider everything that a typical buyer for that property would consider.  Below are some of the top factors affecting home values from a Chicago real estate appraiser’s perspective.

 

Location or Neighborhood

In Chicago, the neighborhood you live in can have a drastic effect on your properties value.  Your home’s proximity to public transportation (CTA or Metra stations) as well as restaurants, shopping, grocery stores, quality schools, parks, etc all affect value. Conversely, having a location with noise pollution can have an adverse effect on your home’s value (directly across from train tracks, on a busy street, next to a gas station, etc.)Es war einmal in Deutschland 2017 movie download

 

Gross Living Area (GLA)

GLA is defined as all liveable space that is 100% above grade (Gary Kristensen has a great article and video that goes into further depth). The amount of value per square foot is determined on a case by case basis depending on many factors.

 

Condition or Effective age

The effective age of the home is determined by the amount of updating or overall condition. For example a home built in 1955 could have a 10 year effective age if the home has recently had a significant amount of renovations completed. Keep in mind that just because you spend $25,000 on a new kitchen that does not necessarily increase your home’s value by exactly that amount.

 

Quality of Construction

This refers to the materials used to build the home and the overall quality of finishes on both the interior and exterior. For example, an all brick home compared to a home with aluminum siding or stucco, granite countertops compared to laminate countertops, hardwood flooring compared to carpeting, solid core 6-panel interior doors compared to hollow core flat panel doors, etc.

 

Lot size

A larger lot can add significant value. This is especially true when looking at possible “tear downs” in Chicago because the size of the new construction home is typically limited by the zoning department to a percentage of the size of the lot. A 30’ x 125’ lot compared to a 25’ x 125’ lot can have a significantly higher value in areas where there is a demand for buildable lots like Lincoln Park, Old Town, Gold Coast, etc. As you get further out on the northwest side and there is not as much demand for new construction, a larger lot could mean room for a side driveway.

 

Bed and bath count

Generally speaking, more is better. However, in many neighborhoods there is no discernable difference in value between a 4 bedroom and 5 bedroom home. The law of diminishing returns typically will apply. For example, the difference in value between adding a full bath to a 1 bath home is typically greater than adding a 4th bath to a 3 bath home.

 

View

This can be best demonstrated by condos in Chicago high rise buildings. Two units that sold at the same time, with the same floor plan, located on the same floor, but with different exposures will likely have different values. The one that faces west and only has a city view vs. the other unit that faces east and has a view of Lake Michigan can have as much as a 10-15% difference in value.

 

Additional features

These are things like fireplaces, decks, porches, patios, garages, landscaping, layout (open floor plan vs. closed/boxy layout), etc.  Jeff Hamric discusses floor plans with functional obsolescence here.

 

While these are the top features that influence value, there are many other things real estate appraisers consider. If you have any questions on how any of these items may specifically affect your situation, please feel free to post a comment below or call me at (847) 863-5776.

Tips for Real Estate Agents to Avoid a Bad Appraisal

realtor tip- How to avoid a bad appraisalAs a real estate agent, it’s possible you have been the victim of an appraisal that came in below the contract price. Then when you saw one or two of the sales the appraiser used, you were upset.  You wanted to scream, “But that house has X, Y, and Z differences!” In many of those cases, it’s possible that the market just didn’t support the contract price, while in other cases, it was the result of a bad appraisal.  Here are some tips to help you prevent the latter from happening.

As experienced real estate appraisers, some of us like to think we know it all; we know everything about every street of every one of Chicago’s 200+ neighborhoods. But the truth is, we don’t. As certified licensed appraisers, we are required to be geographically competent in the areas we work. However, it is impossible to know the intricacies of every street and neighborhood in Chicago and the surrounding suburbs. A truly good appraiser makes use of all resources available to ensure we are giving our clients the most thorough, accurate appraisal possible, and that includes reaching out to real estate agents and accepting/analyzing any sales you provide.

There is a myth that real estate agents can’t talk to appraisers. Appraisers are by law required to develop a well-supported, unbiased opinion of value. We must be independent, impartial, and objective and cannot be an advocate for either side of the transaction. As long you, the real estate agent, are not trying to influence or pressure the appraiser to arrive at a particular value, we should not only welcome a conversation, but seek it out. I want as much information as possible, and if the agent feels it would be helpful to provide me with some comparable sales to consider, I am happy to look at them. Does that mean I will just take the three sales you give me and use them in my report without completing my own due diligence? Of course not. When I’m provided with sales, that is exactly what they are, sales. They do not become comparable sales until the appraiser has analyzed them and decided that they are the most similar sales in the neighborhood and are the best indicators of market value.

It is most valuable when the agent gives me two or three truly comparable sales from the MLS with notes pointing out things that may not be easily observed just by looking at the listing sheet. It is less valuable when I’m given a stack of MLS listings by the agent and it appears that the only search criterion they used was all properties that sold above the contract price of the subject. A thorough appraisal should will always include an exhaustive search of all sales and listings in the subject’s market area and only those that are most similar to the subject should be selected.

In some cases, it is the most helpful when I am provided information on a sale that appears to be similar to the subject, but sold below the subject’s contract price (believe me, we are going to find it anyway and it is best to explain the situation up front). Here are a few situations I have run into in the past when a sale appeared to be very similar to the subject but there were certain issues that could have been easily overlooked or were not properly communicated on the MLS:

EXAMPLES OF DETAILS TO POINT OUT TO THE APPRAISER

  • A sale was listed as a 4 bedroom, but 2 of them were in the basement and represented that way on the MLS listing.
  • The house was located on the rear of the lot and it sold lower because it lacked a backyard with privacy.
  • The only bath that a Tudor style home had was on the first floor while all three bedrooms were on the second and therefore functionally undesirable to most buyers.
  • The home’s basement had flooded after being listed (therefore was not mentioned on the MLS listing sheet) and the buyer negotiated a lower price to factor in the cost of rehabbing the basement.
  • Homes on the west side of street A are selling at a premium to the east side because they back to other single family homes while the east side backs to 2-4 flat buildings (as was the case on a recent appraisal in the Lakewood Balmoral neighborhood).
  • Sales on the south side of the Isabella Street go Evanston High School and those on the north go to New Trier (significant difference in value).
  • The subject is a unique house for the area with no recent sales of similar houses on the MLS, but there was a similar home that sold FSBO recently (we can typically verify those through various sources but may not have initially found it on our own if it was not listed on the MLS)

Many of you also often specialize in a particular neighborhood and can let us know these things. There are endless of examples that I could give of situations where the real estate agent made me aware of something I otherwise may not have noticed or known.

As real estate agents, you have an advantage over appraisers with regards to access to the buyer/seller’s thought process. You are meeting buyers and sellers every week and you get to hear what buyers think and how they are making their decisions. You have walked through or toured the interior of many of the sales and listings in the neighborhood and have heard feedback from your clients (aka “The Market”). This can be very valuable information for appraisers as we are trying to determine “Market Value”.

It is our job to reach out to you. Unfortunately, we are typically given no more than 48 hours from the time of the inspection to have the completed report submitted to the client. That means if we call and leave a message letting you know we have a question, we really do need to hear back from you that day or the next. It is not uncommon for me to get a call a week later when I have already signed and submitted the report. It is much easier to edit a report with new information BEFORE it is signed and submitted to the lender.  We know you are busy and your time is just as valuable as ours, which is why I make sure to let those that do take a couple of minutes with me on the phone, that they are appreciated.

Appraisers are trained in many different techniques to analyze the market but similar to real estate agents, not all appraisers were created equal.  Some are willing to go the extra mile, while some may not.  And you as the real estate agent can be a really good information resource for those appraisers willing to reach out and those agents willing to share their knowledge.  By pointing out some of the issues listed above, you could end up avoiding an “appraisal problem” in the future.

If any of you have any appraisal questions on this or any topic, please feel free to leave a comment or call me directly at (847) 863-5776.

And a HUGE thank you to all the agents that have taken my calls over the years!

 

Do you need help in challenging a bad appraisal?  I have provided two different templates below that you can use to do so effectively and efficiently.

 

Template 1 for Challenging a bad appraisal
Template 2 for Challenging a bad appraisal

 

 

Lincoln Park Single Family Housing Market

Lincoln Park Single Family Housing (5)I recently analyzed the Lincoln Park Condo market to get to see where condo prices might be heading.  This time I will be looking at the Lincoln Park detached single family market in Chicago.  I again compared the current median sales prices vs. those that are under contract and are expected to close in the next 30-60 days. First lets look at a few charts to see how the market has performed over the last year.

 

 

Year-Over-Year Median Sales Price (Rolling 12 month average) – As you can see below, the overall detached single family market is up 15.4% year-over-year and the upward trend appears to be continuing with the most recent data showing a median sale price of $1,500,000.

 

 

Months supply of inventory – Supply of inventory is around 5 months and has remained around this level for some time now up.  Anything between 3-6 months is considered to be a balanced market.

 

Average Market Time – The average time it takes to sell a house is significantly less (down 21% year-over-year).  This is also a healthy number and is a sign of a strong market.  For a little perspective, that number peaked at an average of around 221 days on market back in 2010.

 

 

List to Sales Price Ratio – The amount the home sells for vs. what it was most recently listed for has remained stable year-over-year at around 95%.

 

Distressed Sales – As you can see below,  the number of REO (foreclosures) and Short Sales are almost non existent in Lincoln Park and have not been a factor for quite a while.

 

 

 

As noted in the previous post, these are “rear view mirror” statistics.  As I analyze the market to help homeowners determine an appropriate  listing price for their home, (click here for more info on that process) I analyze forward looking indicators in an effort to be aware of what may be in store for the market.

After noting the current median sales price of $1,509,000, I compared that data point to a more forward looking data point, pending sales.  The current median list price of the units currently under contract is $2,195,000.  That number is significantly higher than what has sold over the last 12 months.  With the exception of a few hot markets, homes very seldom sell at list price.  Over the last 12 months, the list to sales price ratio is approximately 95% (see chart above).  Even after the 5% is removed from the pending sale to anticipate the final sales price, there is still a projected significant increase in median sales prices for those homes currently under contract vs. the current 12 month median sales price. Due to their only being approximately 41 units in the pending/under contract data, I expanded the data to include all active listings as well.  That included 148 homes and brought up the median list price to $2,095,000.   It is more than likely that there is a larger mix of larger, newer construction homes in the pending/listing data that could be inflating the projected overall increase, but based on that data combined with other market factors analyzed, the single family market appears to be strong and should remain so over the next few months.

In summary, the overall detached single family market has been strong over the last 12 months and the Lincoln Park neighborhood is not showing any signs of slowing.   It will be interesting to see what happens over the next several month.   For more Lincoln Park charts check out our Lincoln Park Page.  If you have any questions, please feel free to call us anytime at (847) 863-5776.

 

Chicago (Lincoln Park) Condo Market

Lincoln Park Condo MarketBased on recent speculation in the national news about a cooling housing market, I recently analyzed the Park Ridge market to get to see where prices might be heading.  This time I will be looking at the Lincoln Park neighborhood in Chicago.  I wanted to compared the current median sales prices vs. those that are under contract and are expected to close in the next 30-60 days. First lets look at a few charts to see how the market has performed over the last year.

 

 

Year-Over-Year Median Sales Price (Rolling 12 month average) – As you can see below, while the overall condo market is up 5.6% year-over-year, the upward trend appears to be flattening out and the market appears to be stabilizing.

 

 

Months supply of inventory – Supply is down to 2.9 months of inventory but is slowing creeping back up.  (down 6.8% year-over-year)  Whenever supply is below 3 months of inventory we consider the market to be under supplied.

 

Average Market Time – The average time it takes to sell a house is significantly less (down 27% year-over-year) but this indicator is also flattening out with the last 4 months having an average market time of 57 days.

 

 

List to Sales Price Ratio – The amount the home sells for vs. what it was most recently listed for has only increased about 0.6% year-over-year and has leveled off at a strong  98%.  (This can sometimes be skewed as many condos are listed with parking “not included” and then the final sales price includes a $10,000-$25,000 deeded parking space.

 

Distressed Sales – As you can see below the number of REO (foreclosures) and Short Sales haven’t been a big factor in Lincoln Park over the last few years but still show a positive sign as they are down 49% and 64% year-over-year.

 

 

 

Overall, while the market has had a good year, these statistics are considered to be in the “rear view mirror”.  As I analyze the market to help homeowners determine an appropriate  listing price for their home, (click here for more info on that process) I analyze forward looking indicators in an effort to be aware of what may be in store for the market.

I decided to use 2 bedroom/2 bath units in an attempt to break out the extreme high end and low end of the market and compare apples to apples.  After noting the current median sales price of $408,000, I compared those two data points to a more forward looking data point, pending sales.  The current median list price of the units currently under contract is $394,000.  That is approximately 3% lower than what has sold over the last 12 months.  With the exception of a few hot markets, homes very seldom sell at list price.  Over the last 12 months, the list to sales price ratio is approximately 98% (see chart above).  Therefore, once the 2% is removed from the pending sale to anticipate the final sales price, there is still a projected decrease in median sales price of 5-6% for those units currently under contract vs. the current 12 month median sales price. Due to their only being approximately 50 units in the pending/under contract data, I expanded the data to include all active listings as well.  That brought up the median list price to $400,000 (2% higher than the “under contracts”).  But keep in mind, these listings could still experience a lowered list price as they are still not under contract, which could account for the 2% bump.

In summary, while the overall market has been strong over the last 12 months, the Lincoln Park condo market in Chicago does appear to be slowing.  However, with such a low supply of inventory on the market, things could turn back up.  Also keep in mind that we will soon be heading into the seasonally slower fall and winter months.   For more Lincoln Park charts check out our Lincoln Park Page.  If you have any questions, please feel free to call us anytime at (847) 863-5776.